FF/PD deal plans to reduce corporation tax rate to 10%

THE new Government has promised to reduce the standard rate of corporation tax to 10 per cent by the year 2010 as part of its policy programme. This is a significant change from the Rainbow's promise to reduce the standard rate, now 36 per cent, to 12.5 per cent and means a further cut of at least two percentage points in the 36 per cent rate is on the cards for the November Budget.

The commitment on corporation tax is one of the main items of interest to business contained in the new programme for Government. The outgoing Minister for Finance, Mr Quinn, indicated that he had received a generally positive response from the EU Commission to his plan to move to one corporation tax rate of 12.5 per cent by the year 2010, when approval for the existing 10 per cent rate runs out.

However, Fianna Fail and the Progressive Democrats argued during the campaign that this would entail a tax increase for manufacturing firms currently on 10 per cent, discouraging inward investment. They now propose to gradually move down to 10 per cent, although whether this gets an adverse reaction from Brussels remains to be seen.

In terms of income taxes, the proposals are along the lines of the two manifestos. A large part of the focus is on reducing the two income tax rates to 20 per cent and 42 per cent and extending the standard rate band, offering substantial gains to many middle and higher income earners. There are less specific commitments relating to increasing personal allowances and reducing PRSI and levies - measures which give greater benefit to tower earners.

Tighter control of public spending is promised by capping the overall increase in current spending at 4 per cent a year. Maintaining the promised surplus on the current budget should be - easily enough achieved, if growth remains high. But eliminating exchequer borrowing completely "over the next two to three years is only promised "if present conditions continue". Otherwise the need to borrow to fund capital spending will maintain an overall Exchequer Borrowing Requirement.

Tighter financial control is seen as essential for entry to monetary union. The parties promise to consult the exposed sectors of the economy about threats from monetary union. But it appears to suggest that the problems after EMU entry which threaten jobs should only be considered as they arise through "urgent consultation with the social partners", rather than drawing up an advance strategy.

Elsewhere many of the proposals in the business area are general in nature. However, the programme makes a specific commitment to developing a new system of training and to "the examination of the future role and structures of FAS". The outgoing administration, having considered splitting up FAS, proposed to set up a new national employment service as a subsidiary of the organisation. But this may now be back on the table.